Treasury Secretary Timothy Geithner sat down for an exclusive interview with "Good Morning America" co-anchor Diane Sawyer Sept. 14, 2009. Geithner discussed the economic crisis of the past year and said he sees progress in the economy, but that "it's just the beginning" and "there's no recovery yet."

The following transcript of their interview has been edited for clarity.

DIANE SAWYER:
Mr. Secretary, welcome to our morning.

TIMOTHY GEITHNER:
Nice to be here.

SAWYER:
What's the difference in the way you woke up today and the way you woke up a year ago?

GEITHNER:
It's -- it's dramatically different. You know, a year ago we really were on the verge of a full-scale run, a classic panic. People were starting to think about taking their money out of banks. Hadn't happened in a century. It was a remarkable thing.

SAWYER:
Did you --

GEITHNER:
I think there --

SAWYER:
Did you feel that people were going to be in a situation where their credit cards would not --

GEITHNER:
We -- we --

SAWYER:
-- be of any use anymore?

GEITHNER:
We were --

SAWYER:
G.E. was going to fail.

GEITHNER:
We were never going to let it get to that point. But there was just real fear. Fear -- just dramatic fear. And what happened is the market stopped. And economic activity effectively stopped around the world. Things just came to a grinding halt, because there was so much fear.

SAWYER:
And waking up this morning? What's the biggest fear?

GEITHNER:
Well, I think the -- the biggest fear now -- let's say the biggest challenge, is to make sure we change the rules of the game so this doesn't happen again. That's the biggest challenge. That's the hardest challenge.

SAWYER:
But a lot of people are saying -- you take a look at what's happening right now. The banks are doing a lot of high risk activity already. The percentage of corporate profits that is still in the financial industry, same as it was a year ago. Toxic assets still on the book. That it hasn't changed.

GEITHNER:
Actually, I think a lot of things have changed. But you can't let the -- go back to where it was. And you can -- Congress is going to have to legislate comprehensive reforms if we're going to be able to prevent a crisis like this from happening again. But some important things have happened. Banks are in a much stronger position to withstand the pressures of this recession or this -- this -- broader challenge. Than maybe they were two years ago, a year ago, six months ago, three months ago.

We've had a lot of capital come into the financial system, which is good. These markets are starting to thaw and unfreeze. People can borrow again more easily. The cost of credit has come down for businesses and families quite significantly. And those are because of the actions the president took, the Congress authorized.

SAWYER:
So, you're saying you can guarantee that it will not happen again?

GEITHNER:
No, we can't -- we can't do that. But what we have an obligation to do is to make sure that we put in place rules here and around the world to make that much less likely. Rules that'll protect consumers better. Make the system much more stable. That's the obligation of governments.

SAWYER:
I want to ask about a couple of things. And I'll get back to the -- to the mortgage and the lending in a moment. But as you've seen, a lot of people are expressing terror. There were tens of thousands of people in the streets in Washington over the weekend. And however you may see them as politically motivated some of them, there were a lot of people there saying things like, "Just look at the reality if you're facing a $1.6 trillion deficit. If you're facing IOUs to other countries. Where suddenly they own America. Our children are imperiled." One woman said, "By the time my children grow up, they won't have a discretionary dime."

GEITHNER:
We got into this because we borrowed too much. We lived beyond our means. Both as a country, many businesses did it, many families did it. Obviously, the financial sector did that. And part of what's going to make this so hard to get out of this is we have to go back to a point where we're saving more. It's starting to happen.

Savings rates have gone up from about one to five percent, which is good. We're borrowing less from the rest of the world now. That's a healthy sign of change. And it's -- it'll make us strong in the future, if we, if we keep that up. But our first challenge is to make sure we get this economy growing. This -- this quarter, this month, we probably have for the first time in 18 months or two years, an economy that's really growing now for the first time. But it's very early still. And our first challenge is to make sure we get this economy back on the path to actual growing. So people are back into -- back to work. So businesses will take a chance again -- on America.

SAWYER:
So, do the people who say, "We just don't recognize our country right now. A country in which we seem to be owning insurance companies and auto companies. And the mortgages themselves. And we're in this kind of debt."

GEITHNER:
Those were --

SAWYER:
"With no prospect of getting out." What do you say to them about their essential fear? Our new poll shows enormous stress --

GEITHNER:
No, I think --

SAWYER:
-- about where the country's headed.

GEITHNER:
I think you're absolutely right. People are very uncertain, and they're very concerned about the future. But those things you described, the actions we did take, you'd never ever want a government to have to do. But in a crisis, in a fire that that was that powerful, the government had to do some deeply offensive things to help contain the damage. And we will get out of that as quickly as we can.

You're already seeing banks starting to repay. The government's earning a reasonably good return on its -- the investments it made in some financial institutions. We're not going to keep a penny in the financial system or in the U.S. economy longer than we think is absolutely necessary.

SAWYER:
By next year, will we be out of the auto business?

GEITHNER:
I -- I think it's going to take longer than that. Just to be honest and realistic.

SAWYER:
Two years? Three? Four?

GEITHNER:
We're going to get out as soon as we can. And again, in the -- if you look at the financial system, where what the government had to do was very dramatic. You're already seeing the government unwind, walk back, reverse a lot of the exceptional things that we had to do. And that's what have to do in a crisis.

I mean, look what happened to the country last year. You had -- you saw, again, economic activity stop. You saw people's pension values fall by 30 to 40 percent. You saw deep fear and uncertainty. Unemployment rose dramatically. A huge amount of damage to the economy because this government didn't do enough soon enough to try to bring the crisis -- to an end. Try to end the panic. But -- and things are better today because of that. But you are exactly right. And I think people in America are right. That when we have the economy growing again. We're going to have to bring these deficits down.

SAWYER:
Back to that a second. A couple of specifics. TARP expires at the end of the year. Extending it?

GEITHNER:
We're -- haven't made that judgment yet. But I think people need to understand, we're going to do what it takes to make sure we repair this damaged system. And we get growth back in track. But we haven't made that judgment yet.

SAWYER:
And tax credits for first time home buyers? Extending?

GEITHNER:
The -- the range of things in the recovery act that were very important, very helpful in bringing growth back. And we'll take a careful look at which of those deserve some temporary extension.

SAWYER:
Again, one of the things people say looking forward is they understand the intention is to get out of this.

GEITHNER:
Right.

SAWYER:
They don't see a possible way out without tax raises.

GEITHNER:
But -- but look what we've already done. It's just an important sign of credibility and people should take some confidence from that. Even though we only started growing as an economy this quarter, again, we're already winding down, dialing back, pulling back from the things we did in the emergency. So, you need to take -- people should take that as a sign of the commitment of this president, and this Federal Reserve, again, to walk back the emergency stuff as the emergency fades. Then we start to focus on repair.

Now, on the -- on the -- on the budget deficits, I think Americans understand that we have an unsustainable -- fiscal position. That we're going to have to bring those deficits down over time. And the president's committed to doing that. I think the American people understand that's necessary. And that's going to be important to do, because if we don't do that, make people confident in that, then growth won't be as strong as we need it to be. And you'll see investment crowded out. And that's why it's so important to do.

SAWYER:
I know that you have said that we're not at the point where we need to make judgments about what specific tax measures we would need to take. Are -- are you still guaranteeing that no one in America will have their taxes raised unless they make more than $250,000 a year?

GEITHNER:
The president committed to that in the campaign. He feels very, very strongly about that. And we can get out fiscal house in order. We can go back as a country to the point where we're living within our means without violating that basic commitment.

SAWYER:
That's your promise. It will not happen.

GEITHNER:
That's his commitment. And he's very committed to that. And if you look at what we've done, again, he put in place as part of the recovery plan a tax cut that went to 95 percent of working Americans. And those basic values, that basic commitment to the middle class of America is going to shape the strategy -- he brings to the economy.

SAWYER:
Perhaps the most bruising part of all of this for individual families, of course, jobs. And we have a new poll out that shows that 47 percent of Americans say that either a job loss or a cut in pay has affected their household. That's half of America. Looking at a Christmas they believe is going to be very different from the Christmas on Wall Street, where salaries are still sky high.

GEITHNER:
Well, that's the --

SAWYER:
Is that fair?

GEITHNER:
No, it's not fair. And that's the tragedy of financial crises. Is that the people who were responsible, they were careful, had nothing to do with the cause of the crisis, bear a huge amount of the burden -- for the crisis itself. And that's why it's so important in a crisis that governments do extraordinary things the contain the damage and bring growth back. And that's why it's so important that we reform this financial system so that these kind of things don't happen again. And that's why the president moved so early to propose sweeping, comprehensive new stronger rules of the road -- for the financial -- because, again, the -- the damage is so indiscriminate. And it's so unfair.

SAWYER:
We are told that at the G20, [French] President Sarkozy, [German Chancellor] Merkel, [British Prime Minister] Gordon Brown are all going to say, "Okay, let's just tackle the bonus issue and say that no bonuses are -- all bonuses should be limited to some proportion of actual earnings. Just get it done." Will you agree to that?

GEITHNER:
The president was ahead of those countries. Ahead of countries around the world in moving very quickly to propose strong reforms of compensation practice. He did so on February 4th. And the Congress has already legislated very tough conditions on compensation. But not enough has been done yet. It's very important these practices change now. And we're going to support, not just in the United States, but across the other major economies, because this is a very competitive world. If you don't do it everywhere then you won't be effective.

So, we're com -- we're committed to strong reforms of compensation practices. But that's only one part, Diane, of what it's going to take to make the system more stable, more fair in the future. So, we proposed, again, sweeping changes to bring derivative markets under oversight, stronger constraints on leverage and risk taking, and we're -- we expect to have broad support around the world for those proposals.

SAWYER:
What do you say to your friends on Wall Street about this? What do you say to them personally about the prospect of institutions taking $45 billion in taxpayer money and paying out huge amounts in bonuses to themselves?

GEITHNER:
Well -- well, we're -- we're not going to let that happen. We can't let that happen. And the Congress of the United States has legislated conditions on what companies that took exceptional assistance from the government can actually do in terms of compensation for senior executives. And that's a very important thing. It goes to the basic values of America. You know, in the United States, I think people don't mind rewarding success. But what they don't want to see is -- is individuals or companies rewarded for failure. And that's why we want to change the -- the system.

SAWYER:
Do you agree with what Elizabeth Warren of the Congressional Oversight Panel said, namely, that public fear has turned to anger. That the public feels that it was stuck with the bill, but didn't get the benefits.

GEITHNER:
Yeah -- yeah, absolutely. I think that she's absolutely right about the level of frustration and fear. But again, that's the tragic thing about financial crises is that you -- they cause so much damage that you have to do extraordinary things to arrest the panic, fix the problem, pull the economy back from abyss. And you can say today, for the first time in not just -- six, eight, 12, 18 months. You can say that this economy is now growing again, which is the beginning. It's just the beginning. Unemployment is still extraordinarily high. There's still a huge amount of uncertainty and concern about the future. But we're starting to make some progress.

SAWYER:
When Larry Summers of the Council of Economic Advisors says that we're going to have unacceptable unemployment for years. How high is it going to go?

GEITHNER:
Most economists -- I'm not -- this is not a forecast. But I think most private economists think unemployment's going to peak close to where it currently is, maybe slightly higher. And -- and I think the reason why this is -- this is -- we're in this position is because again --

SAWYER:
To where?

GEITHNER:
Economists, Diane, aren't very good about forecasting the future. If we learned one thing in this crisis, it was that. They don't know so much about the future. But the reason why we're going to be in a position where unemployment is so high and could stay high for a long time is because, again, it's going to take us a while as a country to dig out of a long period where we were borrowing too much. We allowed too much risk and levers to build up. That's why it's going to be -- relatively -- it could be a relatively slow recovery. But that's why it's so important that we get the rest of the world to move with us to get growth back on track.

SAWYER:
There is a movement afoot, either to have a new stimulus or a retooled stimulus that only targets jobs. Is it going to happen?

GEITHNER:
Well, again, we're -- we're looking at a range of things to help reinforce this initial progress we've seen to get growth back on track. And the president is -- as he said, you know, we're not going to be done until we have every American who wants to find a job can find a job. And we have unemployment back to it's level that -- that you can reasonably expect (UNINTEL) economy.

SAWYER:
But how quickly -- how quickly can you assure people out there what we have two million people -- we have -- we have 15 million people looking for two million jobs, available jobs.

GEITHNER:
What we can say is that we will do everything sensible, everything we think is effective, to help get growth back on track. Help bring unemployment down.

SAWYER:
Number one among them?

GEITHNER:
And we're going to -- and we're going to stick with it until we achieve this. And that's why there's such a powerful program of stimulus in place now. And why we've been so aggressive in helping fix this financial system.

SAWYER:
One question about foreclosures and mortgages. This is just a small example which contains a greater truth in it, as people experience it. Bank of America, which has the no -- most number of -- mortgages -- that could potentially be modified, has only helped seven percent. And again, taxpayers gave them what? $45 billion. And after all this time, they've only helped seven percent?

GEITHNER:
You're -- you're exactly right. And some -- some banks have been relatively slow to get this going. And they're going to have to substantially step up their efforts, because we want this program to reach people who are eligible for the benefits of the program. But we -- we expect to see half a million families in -- with mortgages have -- allow for substantially lower monthly payments. In place by November 1st. And we're going to see, I think, much st -- much more rapid progress by those institutions who are a little slow and late. And it's very important we see that.

SAWYER:
Do you think government has been at all responsible for the fact that they didn't -- they didn't feel an urgent need to move more quickly?

GEITHNER:
Oh, of course. And that's why -- that's why the president put in place the program he did at the -- at the beginning of this year. I mean, the president moved very early to do extraordinary things to bring down mortgage interest rates so that people across the country are able to borrow at lower rates than would have been possible. You're seeing the housing market now start to show signs of stability, because of the effect of that program.

And as I said, about half a million families by November 1st, perhaps earlier than that, are going to be in -- in modified mortgages, allow them to stay in their homes, and pay much less on their mortgage than they were paying before. That's -- that's a very important program. And again, we're seeing some -- some signs of stability in housing markets.

SAWYER:
So, for the people out there again, who -- who have been -- who still believe there are two recoveries. One for Main Street and one for Wall Street. One in peoples homes, where they're just reeling from job loss. And another -- on Main Street. You say it's true?

GEITHNER:
I would say there's no recovery yet. We -- we don't have in place yet a real recovery. We define recovery, and the president will define recovery, as -- as -- as people back to work. People able to get a job again. Businesses investing again. And we are not at the point where we can say that yet.

SAWYER:
Any regret on your part you want to express to them? That you think you could have done differently? That the government should have done differently to make it better for them today?

GEITHNER:
I have said this many times and I think it's absolutely true. The government of the United States, along with governments around the world, did not move early enough, did not move soon enough, to address this crisis. It underestimated the strength of the recession, underestimated the damage it was going to -- do. And underestimate what it was going to take. And did not see things start to improve until really the beginning of this year when there was overwhelming force put behind a strong recovery program. Strong housing program. Effort to fix this financial system.

GEITHNER:
Well -- well, again, two -- two failings. The government didn't move early enough to help contain the damage. And -- and we're two years into this. You know, this thing really did start two years ago. And a more forceful response earlier would have made it less damaging. And I think that's -- that -- that was the tragic failure of policy in this crisis. But to fix this going forward, we've got to reform this financial system. You know, you said, Diane, at the beginning, people are -- are worried we did too much. And some people are worried we haven't done enough yet.

SAWYER:
Yes.

GEITHNER:
We're going to --

SAWYER:
Warren Buffet said that it's like taking half a Viagra.

GEITHNER:
(LAUGH) Yeah. But what the president said, and what's important, is we're going to do what it takes to get this economy growing again. To help make sure people can get back to work. People are taking -- are investing again for the future. And that's the ultimate test of --

SAWYER:
And if it means another stimulus, another half of Viagra, you'll do it?

GEITHNER:
Well, we're going to look carefully, any sensible program. And if it offers the prospect of getting growth back to a stronger position sooner, then we'll take a hard look at it.

SAWYER:
Are there banks still too big to fail? Is that a peril?

GEITHNER:
It is -- it is -- a huge peril for the country and for the global financial system. And that's why reform is so important. And we've proposed the most sweeping set of changes to the financial system this country's considered in decades. But it requires Congress to legislate. And it requires countries around the world moving with us. 'Cause if we just do it here, then the risk will just go somewhere else.

SAWYER:
A lot of attention paid recently to the bundling and securitizing of insurance policies. Life insurance policies, which seems to be gambling that someone will actually die earlier. What? Three trillion out there. Is this another potential -- time bomb? If this is allowed to happen?

GEITHNER:
And one reason why reform is important and soon is because you don't want to see a return to the sort of innovation of complex products that can be damaging to the --

SAWYER:
Will you prevent this? Will you specifically intervene to prevent this?

GEITHNER:
We're proposing to establish in one place responsibility to write strong rules to protect consumers and investors and to enforce those rules. That responsibility was spread across a whole bunch of entities, they didn't do an adequate job. They left large parts of the system with no oversight and discipline, no enforcement. And that's something that has to change.

SAWYER:
But a lot of people just think in -- on principle, you should not be allowed to profit from this. Do you think in principle you shouldn't be allowed to profit on it?

GEITHNER:
See, I don't know about principles. But the reality is we need a system that does a better job, again, of protecting consumers and investors. And provides for a more stable system. Less prone to these big bubble and bust cycles. They're just enormously damaging as we've seen.

SAWYER:
At this point, this morning, after one year or two years, if we look at the reality, is it a v-shape or a w-shaped, double dip recovery? Is there another wave coming?

GEITHNER:
It's likely to be slower than a typical recovery, again, because it's going to take us a while to grow out of this. To sort of earn our way out of this. To save more, de-lever, repair the things that were broken. That's going to make it a slower, more gradual recovery than normal. But -- we have a very good chance, working with countries around the world to make sure that we achieve -- we achieve that relatively soon. And -- and people are worried still about whether things will fade, growth will fade as stimulus fades.

SAWYER:
Your instincts say it's a v and not a w? However slow --

GEITHNER:
I don't --

SAWYER:
-- a v?

GEITHNER:
I don't -- Diane, I don't do the letters. And again, as I said, economists -- I'm not an economist. Economists don't know so much about the future. What we do know is that it's going to take a sustained commitment from your government, from this government, governments around the world, to fix this -- the cause of this crisis and to get growth back on track. We're at the beginning. A lot of progress so far. We're gettin' money back from the financial system. We're starting to unwind these exceptional things. We're not going to be involved in the auto industry, the financial industry,any -- a day longer than we need to. And we're seeing the first signs of a path to exit.

SAWYER:
Going to -- extend unemployment benefits?

GEITHNER:
Very likely the Congress will do that. And they should.

SAWYER:
What about the concern a lot of people have about the commercial real estate and foreclosures, defaults?

GEITHNER:
Still -- still a lot of -- pressure ahead for the financial system, even in real estate. Again, people made a lot of bets on a -- on a future that was more stable than was realistic.

SAWYER:
But is that the next big potential bomb to detonate?

GEITHNER:
No, I think that the U.S. economy can weather those pressures ahead. Because of the scale of support we provided to the financial system, and that the government's committed to provide. I think we can manage and weather those challenges, we just got a lot of challenges ahead still. And, you know -- you had -- just had a lot of people in a lot of industries, particularly in real estate -- just take too much risk.

SAWYER:
Flash forward a year from now, again, talk to somebody sitting out in their kitchen this morning and making breakfast and terrified ...

GEITHNER:
A year from now, those -- growth will be stronger, unemployment will be lower, it'll be easier to find a job, incomes will be growing more rapidly, people will able to be more confident in the value of their savings. They'll be more likely to put their kids through college. Things will be getting better. But again, it's important for people to understand, it took a while to get into this. It's still going to take a while to get us out. There's no easy, quick, immediate fix to these things. It's going to require a long period of change in behavior. The government has to help that transition. Help that transition. And we're making some progress.

SAWYER:
A couple of personal questions. You -- you -- did you know people who've lost their jobs? In your family?

GEITHNER:
I -- I do. I have -- I know a lot of people who have lost their jobs. I think we all know people who've been touched by this. And again, that's why these crises are so tragic. And so unfair. Is because they cause just indiscriminate damage. People, again, who were careful, thoughtful, were doing important things. I mean, get -- get caught up in these things. And that's why, again, governments have to do forceful, exceptional things to fix the problem.

SAWYER:
And I come back to it. Is there something new you can tell people about that will stimulate jobs? Whether it is n -- a new kind of tax incentive to companies to hire?

GEITHNER:
Diane, the -- the Recovery Act was designed as a two year program. So, a large part of its initial effects, in terms of the tax cuts, money for states, unemployment benefits happened right away. But a large part of the benefits that'll be helpful for employment are only starting, only started the last two months.

So, the programs to improve infrastructure, for example, are just getting underway. And you're going to see a sustained period of time where those add to growth. And that's why economists now, many economists, although as I said, they don't know that much about the future. Many economists now think the economy's d -- going to be growing -- at a significantly positive rate next year.

SAWYER:
In all of this, what's been the bleakest moment for you?

GEITHNER:
August of 2007 was very dark, but without a doubt, a year ago today, was the -- was the darkest moment. As I said, when -- when we began, at that time, for the first time, really, in -- in almost a century, Americans were wondering whether banks were safe. Whether they could keep their savings in banks. And I think those fears today no longer exist, because of the strength of the actions that both my predecessor and this President have -- have helped put in motion.

SAWYER:
What do you do when you're afraid?

GEITHNER:
Diane, what I do -- is -- I figure out what we can do to fix it. My view is our job, and that's for people in jobs like this, our job is to figure out what can we do to help protect the future of financial security of the American People. How can we move as quickly as possible to repair the damage, get things better? That's what I do.

SAWYER:
Part of this anxiety, sincere and genuine anxiety as you look at the dollar, which has your name on it now. And -- that the climb of the dollar internationally is terrify --

GEITHNER:
It's not -- it's not -- we have a strong dollar. We're going to have a strong dollar. I think the dollar's going to be -- remain the principle reserve asset in the count -- in the -- in the globe for a long -- for a long tie to come.

SAWYER:
But when China is right now holding our IOUs. When we are looking to the Chinese to be nice to us --

GEITHNER:
We're not -- we're not --

SAWYER:
-- on credit.

GEITHNER:
-- looking to the Chinese to be nice to us.

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To be --

GEITHNER:
We're --

SAWYER:
-- steadfast, anyway.

GEITHNER:
No, to do what's in their interest. And what's in their interest, largely, is what's in our interest. Because -- we need as a country, and no one should care more about this than the average American, again, need to make sure we're fixing this economy. Getting growth back on track. Fixing our financial system. And we make Americans confident just like investors around the world that we're going to go back to living within our means. That's something that Americans have to feel strongly about. And no one's going to feel more strongly about than me.

SAWYER:
No question in your mind that the Chinese are going to -- not going to back away? They have expressed concern about the enormous --

GEITHNER:
I spend a lot of my time talking to people around the world. Talking to countries around the world, governments, people in business, financial institutions. And I think if you look at what's happened to our financial system over the last six months in particular, you're seeing a lot of confidence in this country. A lot of confidence in our ability to get ourself back to the point where we're growing again. And you're seeing -- American investors -- foreign investors -- vote with us in that basic sense. Again, because I think they see this country doing what it has to do. Which is to move to fix the problems we inherited.

SAWYER:
Going to be a trade war? We read the paper this morning.

GEITHNER:
Not -- not going to happen. I think -- you know, this is just a relatively small example of a basic principle. Which is rules are rules. The system requires that we enforce the rules of the game. I think China understands that. And -- there's no reason why this has to be a big deal.

SAWYER:
You -- you really think -- I seem to be hearing that you really think this is it. That you are -- that you're not hedging on this. Whatever your 60 indicators are that you --

GEITHNER:
Diane, we're growing again now. That's the most important -- that's the beginning. Now, until unemployment starts to come down. Until you see great confidence, less uncertainty, investments start to rise again, you won't have a recovery. And for recovery to work, it's got to be led by private demand, not by the government. But growth is the beginning. It's the necessary condition. And we now -- growth has now started. And that's the critical change.